Global high yield default rates fall to 5.2%, S&P says

New York, Oct. 2 - Global high-yield default rates fell to 5.20% for the 12 months ending in September, Standard & Poor's said.

The rate is down from the 5.47% rate previously reported for August.

At the current level, the default rate is "infinitesimally" above the long-term average since 1981 of 5.17%.

For the U.S. the rate declined to 5.92% from 6.29% in August while the European rate rose to 5.06% from 4.70%.

S&P noted that the decline in the speculative-grade default rate has been accompanied by an easing of lending conditions, as reported in recent surveys by the U.S. Federal Reserve and the European Central Bank.

"Falling default rates have also enhanced issuance conditions in the speculative-grade bond markets - on both sides of the Atlantic - even though they are still at odds with the current trends in the industrial sector, a testimony to the fact that the manufacturing sector remains a laggard in this current gradual recovery cycle," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research group, in a news release.

Industrial production, which is generally regarded as a fairly good leading indicator of the speculative-grade default rate, S&P noted, remained in negative territory for a fifth consecutive month in the U.S. and a fourth consecutive month in Europe.

If the negative trend were to be sustained over a longer period of time, however, fears of a renewed deterioration in credit quality and the default rate could surface, S&P said.

The latest default rates are well below the 2002 rates of 9.37% globally, 7.44% for the U.S. and 13.87% for Europe.

Emerging markets are also seeing declines, with a default rate of 3.12% for the 12 months to September compared to 14.97% for 2002.

So far this year there have been 103 defaults on rated debt worth $49.5 billion, S&P said. The count includes rated entities as well as those not rated at the time of default.

The U.S. accounted for 80 of the defaults and $37.3 billion of the dollar value.

S&P said that its "weakest link" list of issuers vulnerable to default had 39 members at Sept. 30, the same as a month earlier. In that interval, one issuer defaulted, one was changed to a developing outlook and two new issuers joined the list. The "weakest link" issuers are those with a credit rating of CCC or lower and with either negative outlooks or on CreditWatch negative.

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